IMF Executive Board Completes Second Review Under Policy Support Instrument for Uganda

Press Release No. 11/265
June 29, 2011

The Executive Board of the International Monetary Fund (IMF) today completed the second review under the Policy Support Instrument (PSI) for Uganda. In completing the review, the Board approved waivers for the nonobservance of the end-December 2010 assessment criteria on net domestic assets and net international reserves.

The PSI for Uganda was approved on May 12, 2010 (see Press Release No. 10/195) and aims at maintaining macroeconomic stability and alleviating constraints to growth. The IMF's framework for PSIs is designed for low-income countries that may not need, or want, IMF financial assistance, but still seek IMF advice, monitoring and endorsement of their policies. PSIs are voluntary and demand driven (see Public Information Notice No. 05/145).

“Thanks to generally sound macroeconomic policies, Uganda withstood the global financial crisis and other shocks. Economic growth has recovered and is expected to strengthen, although inflation risks, mostly related to rising food prices, have increased. Modest intervention by the central bank has mitigated volatility of the exchange rate, and the financial sector remains sound.

“The main challenge facing economic policymakers at present is to adjust fiscal and monetary policies to safeguard macroeconomic stability and rebuild policy buffers, including international reserves. Scaling up infrastructure investment will also be key to faster growth over the medium term.

“To restore fiscal space, the authorities plan to raise domestic revenue by eliminating some tax exemptions, improve spending efficiency by strengthening investment project selection, and enhance budget formulation by revising the Public Finance and Accountability Act. “Going forward, the government’s recourse to central bank financing will be strictly limited to foster macroeconomic stability and strengthen the operational independence of the central bank.

“The Bank of Uganda is committed to tighten the stance of monetary policy if price pressures intensify. Over the medium term, reforms to the monetary policy framework—including the proposed adoption of inflation targeting—may be appropriate. The upcoming FSAP update will review financial system stability and chart the path for further financial sector reforms,” added Mr. Shinohara.